Devon's quarterly results exhibit strengths, CEO says
Devon Energy posted a net loss of about $1.8 billion for the first quarter of 2020.
But don't be misled by that number, its top executive said Tuesday.
Dave Hager, Devon's CEO, said it doesn't represent the hard work the company's leadership team and its employees executed during the period as it navigated the ongoing coronavirus pandemic and its effects on the nation's economy.
Hager said an evaluation of the company's assets based upon current business conditions (the plummeting price of oil) required Devon to take $2.8 billion in noncash impairment charges for the quarter.
Outside of that, Hager said the company's performance during the period excelled.
He stressed Devon is wellpositioned for the future, given 90% of its oil production for the remainder of 2020 is hedged at $42 West Texas Intermediate (WTI) and that 50% of its oil
production during t he first six months of 2021 is hedged at $38 WTI (the company is still working on developing its 2021 hedging plans, a presentation put together for investors notes).
Plus, Hager noted the company worked hard the past several years to become capable of living within i ts cash flow — something it continued to do the first three months of this year.
Devon has $1.7 billion of cash on hand, a $3 billion revolving credit facility it hasn't touched and won't see a requirement to pay off any of its debt until the end of 2025.
That separates the Oklahoma City- based company from its peers, which on average will see about 22% of their debt mature between now and the end of 2023, company officials said.
“Obviously, lower commodity factors impacted everything,” said Hager. “But our production came in above guidance, capital expenditures came in below our guidance, and that shows how well we are executing.”
The earnings release Devon published after markets closed Tuesday stated the company beat its midpoint guidance for capital expenditures during the first quarter by 12%, primarily thanks to improved efficiencies involving Wolfcamp wells drilled and completed by the company in the Delaware Basin.
It stated the company's oil production for the period exceeded its guidance by 3,000 barrels per day.
Devon' s first qu arter operating cash flow increased to $529 million, up 21% compared with the same quarter in 2019, and the company also generated a $104 million flow of free cash during the period.
Looking ahead, the company stated it plans to limit its capital investments for 2020 to $1 billion and expects its oil production to be essentially flat, year-over-year.
It also plans to implement a 10,000 barrel-per-day curtailment of oil production during the second quarter of this year, if commodity prices warrant the need.
Meanwhile, it updated projected costs for the year, cutting those by $250 million (in part due to executive pay reductions of about 40% it plans for the remainder of the year).
“In this uncertain environment, our top strategic priority is to preserve our financial strength,” Hager stated as part of the company's earnings release. “Our decisive actions to date have accomplished exactly that.”
Drilling down
Devon reported Tuesday its first-quarter 2020 core earnings, a measure comparable to earnings estimates made by securities analysts, was $48 million, or 13 cents per share.
Its net loss of about $1.8 billion shook out to $4.82 per share.
In the first quarter of 2019, the company posted a net loss of $317 million, or 74 cents per share.
The company's firstquarter 2020 upstream revenue was about $1.53 billion, compared to $314 million the same quarter in 2019.
Its first-quarter 2020 production expense was $318 million, compared to $283 million a year ago.
Its first-quarter 2020 earnings before interest, taxes, depreciation, amortization and exploration expenses (EBITDAX) was $490 million, compared to $572 million the first quarter of 2019.
The company grew i t s f i r s t - quarter 2020 Delaware Basin production by 51%, year-over-year, bringing 32 wells there to market during the period.
Also during the first quarter, It brought 14 wells to market in the Powder River Basin, brought 30 wells to market i n the Eagle Ford shale field and four wells to market in the Anadarko Basin.
A deal the company has pending to sell its Barnett Shale field remains in play, with hopes to close by the end of this year.
Hager said Tuesday the current energy business blues differ from others earlier in his career, given the speed and depth at which they developed.
“I certainly have seen s e v e r a l t i me s w h e r e our i ndustry has been challenged from a pricing standpoint over my 40-year career, but this one is unprecedented, particularly given the demand shock that has been such a large component of it.
“That's why having that financial strength matters,” said Hager, noting the industry doesn't yet know when energy demands will recover.
“We are confident that we will emerge … well positioned to take full advantage of our high-quality portfolio when commodity prices normalize,” Hager said.